Return to The Inner City?
Jakarta Housing Market, Suburbanization, and Potential Strategies for Inner-City Development
Jakarta presents one of the fastest-growing cities in Southeast Asia. Years of urbanization and demographic changes have expanded urban area boundaries to neighboring cities, creating the third-largest urban agglomeration in the world: Greater Jakarta. Jakarta is home to a 10 million population, while Greater Jakarta sustains almost 30 million. Jakarta acts as the capital city and economic powerhouse for Indonesia. The city alone contributes 19% of the GDP, while the rest of Greater Jakarta contributes another 9%, making 28% GDP contribution. In doing so, Indonesia experienced a slow and steady shift from the agricultural and industrial sectors toward services industries.
Despite the economic growth experienced on an aggregate level, citizens of Jakarta would know what it takes to live and work in Jakarta. Soaring housing prices that are not followed by income growth have made a living in Jakarta highly unaffordable. To be able to improve the well-being of their citizen and sustain economic growth, Jakarta needs to take a closer look at how the city houses its citizens and how it failed in doing so.
In this paper, I compiled various literature to investigate the existing state of Jakarta and Greater Jakarta’s housing market. I will begin by providing an overall discussion regarding the housing market in Jakarta by examining demographic changes and various metrics of the housing market. Then, I will discuss several specific phenomena happening in Jakarta: suburbanization and urban decay. Lastly, I would like to investigate the possibility of multiple strategies for inner-city development as an effort to de-suburbanize the city.
1. Housing a Changing Demographics: An Outlook at Jakarta’s Housing Market
In understanding how Jakarta’s housing market operates, basic microeconomics posits that we need to have a housing demand and supply model. At a city level, housing demand primarily developed based on demographic changes. Understanding demographic changes mean that we need to look at the growth and distribution of the population and see how productive citizen is distributed. Additionally, changes in women’s labor participation have affected the household composition and doubled the purchasing power. We also need to examine how migration patterns happen in Jakarta to understand the basics of urbanization and citizens’ mobility. Perhaps most importantly, we need to understand income, as it determines the population’s ability or willingness to purchase a house.
Jakarta is among the most populated and densest capital city in Southeast Asia. Since Indonesian independence in 1945, Jakarta continued to experience steady population growth. As of now, the population in Jakarta reached 11,075,000 population. However, despite the constant growth over the years, Jakarta experienced a declining growth change as seen in figure 2. Compared to the 1950s, the growth rate has declined around 5.5 percentage points. This is an indication of a slower growth within Jakarta that might be influenced by changes in natality and mortality rate, migration pattern, or household composition.
Source: (United Nation’s Population Forecast)
During its growth, Jakarta expanded into a sprawling metropolis marked by the agglomeration of Jakarta with Bogor City, Bogor Regency, Depok, South Tangerang, Tangerang City, Tangerang Regency, Bekasi City, and Bekasi Regency, colloquially abbreviated as Jabodetabek. Due to its special status, it is a common misunderstanding that Jakarta is considered as a city. It is actually a province on its own that is different from the metropolitan area called Jabodetabek, thus needing further breakdown per their city. Since we are going to examine the mechanics of population distribution among these administrative boundaries, it is important to draw a distinction between Jakarta the cities, the province, or the greater metropolitan area.
Source: (BPS 2022)
Source: (BPS 2022)
Over the years, Jakarta experienced a shift in demographic composition. By observing the change in population per age bracket, we see that the percentage of productive population aging from 15-to 54 noticeably increased. While this can be interpreted in many ways, we know that these particular age brackets require accommodations. Jakarta will need to anticipate this shift in age composition. If this pattern continues, we are witnessing a demographic bonus in the upcoming years in which most of the urban population will participate in the housing and labor market. This presents a challenge for the public and private sectors to prepare the supply to absorb the potential increased demand.
Source: (BPS 2022)
While the narrative that Jakarta-as-the city of opportunity persists, data showed that DKI Jakarta might no longer become the primary location of migration. In fact, since the early 90s, outwards migration from Jakarta has always been greater than the number of people entering Jakarta. This constant outflow contradicts the preconception of urbanization direction in Jakarta. On the contrary, the inner suburbs and outer suburbs of Jakarta have experienced faster population growth over the years. This is consistent with the urban expansion and suburbanization pattern explained in chapter 2 of this paper.
Source: (RDTR 2019)
Despite constant population growth in the last decade, Jakarta is still predominantly zoned as a low-rise residential area despite its relatively high density. Roughly 40% of Jakarta is zoned as residential areas dominated by small single-family houses and kampungs. The high density of Jakarta seems counter-intuitive to Jakarta’s lack of high-rise developments. However, it can be explained by the relatively small unit size compared to typical houses globally. Most residential units are below 99 square meters, and the most common unit size is around 20–49 square meters.
Market-led horizontal growth induced by mainly low-rise single-family housing development has made Jakarta’s property price landscape resemble the monocentric city logic (Janssen et al., 2021). Specifically, we can observe stark contrast in the land value within the golden triangle commercial zone compared to the rest of Jakarta (Han, 2004). Aside from this golden triangle area, the rest of Jakarta comprises low-rise single-family housing and kampung that have relatively lower land value. At least five significant factors contribute to land prices in Jakarta: parcel areas, distance to the business district, road class, environment quality, and land certification (Lewis, 2007).
According to Jakarta Statistic Body, at least 38% of residential units available in Jakarta are renters occupied. While the majority is still primarily populated by owners, the percentage of renter-occupied units grew. This might signal that ownership affordability decreased over the years, thus explaining why households resort to renting. Additionally, this signals a new concern since Jakarta’s housing discourse revolves around owning affordability despite the growing shift towards renting.
The inability of housing supply in the inner city to keep up with population growth keep prices high. Multiple ways of measuring affordability confirm how Jakarta has become increasingly unaffordable to live in. Jakarta is comparatively more expensive to live in than Singapore, the highly venerated urbanizing city in Southeast Asia. Despite nominally lower, Jakarta is more expensive in at least two measures: price to income ratio and mortgage as a percentage of income.
Source: (BPS 2022)
This chapter explained how population dynamics and housing supply interacted with each other. We are witnessing a slower growth rate and outwards migration to Jakarta’s periphery despite constant population growth. While mostly zoned as residential areas, the soaring land price and the favored landed housing typology quickly consumed available parcels in the inner city. This pattern pushes cheaper housing development away from the city center, favoring urban expansion rather than urban verticalization.
Changes in demographic composition towards a larger portion of productive citizens need to be anticipated by the housing and labor market. With increasing unaffordability, it is highly plausible that future housing development perpetuates the current fringe expansion (suburbanization) pattern. While suburbanization helped increase housing supply to absorb housing demand from the middle class, it is not without shortcomings.
We are witnessing a slower growth rate and outwards migration to Jakarta’s periphery despite constant population growth. While mostly zoned as residential areas, the soaring land price and the favored landed housing typology quickly consumed available parcels in the inner city. This pattern pushes cheaper housing development away from the city center, favoring urban expansion rather than urban verticalization.
2. Suburbanization of Jakarta
From the early 1970s until the late 1980s, Jabodetabek experienced significant investment in intercity highway infrastructures. The development of Jagorawi, Tangerang, and Cikampek toll roads, followed by the construction of Jakarta’s inner ring road, opened new opportunity areas in the periphery of Jakarta that was previously inaccessible. These highway constructions have become the enabler of massive land-use changes in Jakarta’s periphery, marked by the decentralization of industries and the development of various new towns. Simply put, highway expansions result in scattered urban area development and the expansion of urban built-up areas (Pratama et al., 2022).
Source: (Pribadi & Pauleit, 2015)
The highway-induced urban expansion led to the development of many new towns on the Jakarta periphery. Additionally, new town developments have been induced by unregulated land speculative undertakings (Firman, 2004). Land conversion from agricultural to housing estate was a response to the demand for luxury houses’ speculative practice in Jabodetabek during the early and mid-1990. Speculators bought houses expecting a rise in prices when they resold them. Many newly built luxury houses in the new towns are unoccupied and were bought not for owner-occupation but for speculative purposes or low-risk investment since the land prices in the new town increased rapidly. This resulted in an over-supply of luxury houses in Jabodetabek during the 1990s. Overall, the property development in JMR until the mid-1990s had been characterized by over-building, which is one of the contributors to the economic crisis in Indonesia (Winarso & Firman, 2002).
However, urban expansions and new-town developments can be justified by various push and pull factors (Firman, 2004). The limited developable land, soaring housing prices, congestions, and pollution push people away from Jakarta. On the opposite, a better living environment, infrastructures, and the promise of a secure and exclusive lifestyle pull citizens away to the periphery. This mechanic explained how we witness outward migration, as described in the first chapter.
Despite the significant growth in population associated with new town developments, economic activities are still mainly concentrated in the inner city. Approximately, there are at least 5.4 million commuters travel toward Jakarta daily. Public transportation systems have not been able to keep up with urban expansion, leading to significant growth in motorcycle and car ownership rates (Rukmana, 2018). This way, both highways and urban expansion exacerbate private vehicle ownership, leading to worse congestion and pollution in both the inner city and periphery.
Additionally, the development of New-Towns on the periphery of Jakarta perpetuates spatial segregation in two ways: segregation from existing urban fabric and segregation within new town developments (Firman, 2004). First, it further polarized the middle and upper economic class by reinforcing an exclusive and secure lifestyle away from the lower economic class living in the kampung. Kampung can simply be defined as informal to semi-informal settlements occupied by primarily low-income communities. Secondly, new towns enforce segregation within the development itself by creating clusters exclusive to a specific housing type with separate entryways. This separation by gated and circuitous street networks makes interaction among residents challenging, enforcing social segregation even further.
Gated clusters morphology exercised in many new town developments also excludes services and amenities that are supposedly public, making them into club goods. One specific example is the provision of parks. Developers are required to create public parks within their developments. However, due to the gated design of the cluster system, parks located within clusters have become inaccessible for people residing outside of the gated development. In strict economic definition, this shifts park positioning from a non-excludable and non-rivalrous good into an excludable non-rivalrous good. In other words, only a handful of people can enjoy the park despite being labeled as a public park. While this practice is generally not laudable, we must admit that private developers often took better care of such amenities than the public sector. For instance, streets managed by the developers are usually better maintained than publicly managed streets, as seen in figure 8.
In conclusion, Jakarta has experienced urban expansion associated with highway developments and land speculation that further push and pull factors towards the urban periphery. This haphazard growth has caused many negative externalities, such as perpetuating private vehicle ownership, spatial segregation enforcement, and public goods privatization. Since the urban expansion is rife with negative externalities yet provides little relief to housing affordability, perhaps it is worth exploring ways to bring developments back to the inner city.
3. Return to The City: What It Takes to Rebuild Jakarta
I have discussed how population dynamics and limited housing supplies drive prices up and induce horizontal urban expansion in chapter 2. I also talked about the negative externalities of urban expansion and its failure to alleviate affordability. Here, I would like to argue how urban development measures should be brought back to the inner city by analyzing existing policies and providing case studies that might present alternative strategies for urban redevelopment.
However, if the primary goal of urban development is to improve affordability, we need a better way of measurement. Typical measurement methods such as price to income ratio or mortgage to income ratio have shortcomings. Both measures are typically issued at an aggregate level and are not granular enough for development purposes. Alternatively, we can measure the capabilities of a household to purchase a house in three different ways (Gan & Hill, 2009): purchase affordability, repayment affordability, and income affordability. Measuring purchase affordability means assessing whether a household can borrow enough funds to buy a new house. Repayment affordability considers a household’s ability to repay the mortgage. Income affordability emphasized looking at the whole distribution of household income and housing prices instead of just the median. Granular data on income, housing prices, and interest rates are needed to measure this. By having a robust measurement tool, we can then evaluate whether a policy or strategy successfully improves affordability.
On a national level, the Government of Indonesia approaches the housing affordability issue by targeting three broad household categories: low-income households, middle-income households, and upper-income households. Out of the categories, only the low-income received a direct intervention, and understandably so. Interventions on the low-income households are further targeted at three separate groups: the very poor, the bankable segment, and the non-bankable. In addressing these three groups, the central government, through the Ministry of National Development and Planning along with the Ministry of Public Works and Housing, developed three strategies: self-help housing that provides funding and building materials for low-income households (BSPS), publicly owned rental housing (Rusunawa), and cross-subsidy that require developers to build 6 affordable housing units for every high-end unit they developed. The middle and high-income households are mostly surrendered to the market mechanism as they are deemed financially able to afford a house through the mortgage market. However, high variations in demographic dynamics across cities make implementation suboptimal (Monkkonen, 2013). As an illustration, Jakarta faced increasing demand from both low-income and mid-income due to demographic composition change yet limited in developable land for both expansion and densification. This situation is unique compared to other developing cities with room for growth. This then calls for specific strategies on a local scale to supply affordable units in a limited area.
(source: samawa.co.id)
There are at least two strategies to address affordability specific in Jakarta: 0 Down Payment Apartment and Transit-Oriented Development. The 0%DP apartment is unique since it tries to provide financing and supply solutions simultaneously. In 2021, the government of Jakarta, through its city-owned enterprise, developed an apartment complex in which households can buy without a down payment, lowering the barrier to entry into the mortgage market for many. The apartment complex experienced a high absorption rate where 91% of units were occupied. Despite the success, the government cannot develop and build quickly enough to keep up with its target. By 2021, they only managed to create less than 1,000 units out of the initial target of building 250,000 units. The difficulty of land acquisition and covid thwart construction progress. In this case, we learn how more strategy iteration on the supply side is needed despite the success of the financial scheme, especially on how to acquire and assemble land for inner-city development.
Transit-oriented development (TOD) presents another vehicle for inner-city redevelopment. In general, transit station areas are subject to zoning evaluation and densification strategies to shift commuting patterns toward public transportation utilization. With this redevelopment potential, the local government is expected to capture land value increase and distribute welfare equitably. The current scheme utilized incentives to trigger densification, with the premise that state-owned enterprises, business owners, and individual landowners are allowed to exceed floor area ratio given that they are willing to provide pedestrian connection, open spaces, and affordable housing. Despite lucrative incentives, both private and publicly owned development companies are still in a difficult position to acquire land due to the limited vacant land.
Therefore, it is perhaps best to complement TOD strategies with land consolidation capacity. In theory, it is an ideal redevelopment without displacing existing residents. It helps with regularizing irregular parcel size that has grown organically. It also presents an opportunity to inject sites and services that were previously absent in a typical organic and informal growth. While formalized as one of the national development strategies, land consolidation lacks implementation. The lack of advanced institutional capabilities can explain this lack of implementation to coordinate many stakeholders in a neighborhood. This is especially true when dealing with individual fractional ownership, often lacking formal land tenure. The high cost of land assembly and the long permission process become additional factors of why this approach was not desirable for private or state-owned developers.
However, we don’t always need to rely on the big private or state-owned developers to induce redevelopment. Additionally, the typical parcel size in the inner-city is not feasible to be built as a high-rise development that requires large capital cost anyway. Therefore, it might be worth trying to induce gentle density growth in individual parcels by allowing multi-family buildings to be built in a single-family zone by removing the height limit restriction. This way, each individual landowner can densify their property to absorb the increasing demand for the rental housing market for low-middle income households. The local government can further induce incremental growth by either subsidizing construction costs or providing tax relief.
This incremental growth strategy is perhaps similar to a phenomenon called “missing middle housing” in the US. Missing middle housing concepts posit a range of multi-family housing typologies often missing in a neighborhood primarily comprised of single-family houses (Parolek, 2020). There are multiple models of middle housing development globally that we can draw inspiration from. Some cases that are perhaps worth investigating are the simple rental multi-family model, co-op model, community land trust, and multigenerational housing model.
In its simplest form, multi-family houses take a form of a duplex, triplex, or fourplexes owned by an individual who rents available rooms to potential renters. We can expand this development model by introducing a cooperative system (coop) where the house is owned by a cooperative entity instead of by households. Households then own the equity of the cooperative that can be traded in an equity market. The benefit of this model is that coop owners can pool capital to redevelop existing decaying properties in the city. Another way to do this is by developing a community land trust model (CLT). CLT works differently from coops, in which they take the whole development out of the housing market and try to protect its affordability by imposing certain rules such as a price ceiling. Often, they can only trade with low-income families to keep affordability in perpetuity.
In conclusion, inner-city redevelopment presents an alternative to urban expansion. Due to variation in population dynamics across cities, it is best addressed by the local government on a city level. In doing so, we need a better measurement of housing affordability. Further studies about this measurement are needed in the academic realm. Specific to Jakarta, one of the main challenges is on assembling and acquiring land for redevelopment. Therefore, it is important for local authorities to build the capacity for land consolidation. Alternatively, we can also induce gentle incremental growth targeted to individual landowners using incentives and regulation/deregulation.
References
Firman, T. (2004). New town development in Jakarta Metropolitan Region: A perspective of spatial segregation. Habitat International, 28(3), 349–368. https://doi.org/10.1016/S0197-3975(03)00037-7
Han, S. S. (2004). Spatial Structure of Residential Property-Value Distribution in Beijing and Jakarta. Environment and Planning A: Economy and Space, 36(7), 1259–1283. https://doi.org/10.1068/a36147
Janssen, K. M. J., Mulder, P., & Yudhistira, M. H. (2021). Spatial sorting of rich versus poor people in Jakarta. Bulletin of Indonesian Economic Studies, 1–49. https://doi.org/10.1080/00074918.2021.1876209
Lewis, B. D. (2007). Revisiting the Price of Residential Land in Jakarta. Urban Studies, 44(11), 2179–2194. https://doi.org/10.1080/00420980701518974
Monkkonen, P. (2013). Housing deficits as a frame for housing policy: Demographic change, economic crisis and household formation in Indonesia. International Journal of Housing Policy, 13(3), 247–267. https://doi.org/10.1080/14616718.2013.793518
Pratama, A. P., Yudhistira, M. H., & Koomen, E. (2022). Highway expansion and urban sprawl in the Jakarta Metropolitan Area. Land Use Policy, 112, 105856. https://doi.org/10.1016/j.landusepol.2021.105856
Pribadi, D. O., & Pauleit, S. (2015). The dynamics of peri-urban agriculture during rapid urbanization of Jabodetabek Metropolitan Area. Land Use Policy, 48, 13–24. https://doi.org/10.1016/j.landusepol.2015.05.009
Rukmana, D. (2018). Rapid urbanization and the need for sustainable transportation policies in Jakarta. IOP Conference Series: Earth and Environmental Science,124, 012017. https://doi.org/10.1088/1755-1315/124/1/012017
Winarso, H., & Firman, T. (2002). Residential land development in Jabotabek, Indonesia: Triggering economic crisis? Habitat International, 26(4), 487–506. https://doi.org/10.1016/S0197-3975(02)00023-1
